HMRC Time to Pay for companies: how to get one and when it fails

A Time to Pay arrangement is an agreement with HMRC to clear a tax debt in instalments, usually over six to twelve months. It is available to companies that have a temporary cash problem and can show how they will pay. It is not available, in any lasting sense, to companies that cannot.

What HMRC will agree to

HMRC’s Payment Support Service deals with VAT, PAYE and corporation tax arrears. The arrangement it offers is a monthly direct debit over a fixed period, typically up to twelve months. Longer periods are possible for larger debts with a credible case. Interest continues to accrue; late payment penalties are generally held off while the arrangement is honoured.

HMRC’s standing position is that the arrangement should clear the debt as quickly as the company can afford, that current taxes must be paid on time while the arrears are being cleared, and that the company should have made a genuine attempt to pay before asking. It will want the return for the period filed before it discusses the debt on it.

What HMRC will ask

Expect to answer, on the phone or online: why the company cannot pay now, what has been done to raise the money, what the company’s income and outgoings are, how much it can pay per month, and when it can start. For larger debts HMRC may ask for cash flow forecasts, management accounts or bank statements. The adviser is assessing whether the problem is temporary and whether the company can keep up both the instalments and its current liabilities.

Be ready with a figure you can actually meet. An arrangement that is agreed and then missed is worse than a slightly longer arrangement that is kept.

Why arrangements fail

The most common reason is that the company was not facing a temporary problem. It was insolvent on the cash-flow test, the arrangement loaded another fixed payment onto a cash flow that could not carry the existing ones, and the next quarter’s VAT or the next month’s PAYE went unpaid while the instalments were being met. HMRC treats a missed current payment as a default on the arrangement.

The second reason is optimism in the forecast: the big contract that did not land, the debtor who did not pay. The third is simply not keeping the direct debit funded.

What happens when one fails

HMRC cancels the arrangement and the full balance becomes due immediately. Enforcement resumes from where it was, and HMRC moves faster the second time: a field force visit, a notice of enforcement and controlled goods agreement, a statutory demand, or a winding-up petition. HMRC presents more winding-up petitions than any other creditor, and a failed Time to Pay is a very common prelude to one.

The honest question

A Time to Pay arrangement is the right tool when the company is fundamentally sound and has a timing problem: a seasonal dip, a late-paying customer, a one-off cost. Run the two insolvency tests with the arrangement’s instalments included in the 13-week cash flow. If the cash flow works with the instalments and current taxes both paid, apply, and keep to it.

If it does not work on paper, it will not work in practice, and the arrangement buys a few months at the cost of a larger debt and HMRC’s patience. In that case the useful conversation is with a licensed insolvency practitioner about the company’s options, and the earlier it happens the more options there are.

What to do today

1. File any outstanding returns. HMRC will not discuss a debt it cannot see.
2. Build the 13-week cash flow with a realistic instalment and all current taxes included.
3. If it works, apply online or phone the Payment Support Service with your figures ready.
4. If it does not, speak to a licensed insolvency practitioner before you promise HMRC a payment you cannot make.